Financial Accounting and Reporting: Qingdao Ltd. Acquires Johnson Ltd.

This financial accounting report examines the acquisition of Johnson Ltd. by Qingdao Ltd., focusing on the financial implications of the transaction. The report provides an overview of the acquisition analysis, detailing the process and rationale behind the purchase. It then delves into the consolidation adjustments, including asset revaluation and the impact on the balance sheet. The report includes a consolidation worksheet, income statements, and a balance sheet, illustrating the financial position of Qingdao Ltd. after the acquisition. The conclusion highlights the positive outcomes of the acquisition, such as increased assets and reduced competition. References to relevant academic sources are also included to support the analysis. This report offers a comprehensive analysis of the acquisition from a financial perspective, demonstrating the impact on the company's financial statements and overall performance.

Financial Accounting and Reporting

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
CONCLUSION....................................................................................................................................4
REFERENCES.....................................................................................................................................5

INTRODUCTION
Acquisition means when one company acquires another company in order to expand its own
company's business and to earn more profits by acquiring the company. The acquisition of the
company not only brings more profits to the company but it also brings new resources, new
customers, more assets, more number of human resources etc. Quingdao is the manufacturer and
exporter specialized in seasonal decorations made of natural & Eco-Friendly materials such as 10%
Pure Wool, Yarn, Linen etc. Qingdao Ltd. is acquiring Johnson Ltd. by issuing shares of $110000 as
a purchase consideration on 1st July 2019.
MAIN BODY
1. Acquisition analysis
An acquisition is the process when one company purchases another company in order to
gain control of the company (Howson 2017). In this the company who acquires another company is
known as Acquirer. It is generally done in order to enter into any foreign market, growth strategy, to
reduce excess capacity and decrease competition, to gain new technology etc. Acquisitions are
generally done between large and small companies. If any company acquires 50% or more of
another company’s shareholding than it is acquired by acquirer company (Cicourel 2017).
In this report Qingdao Ltd. is acquiring Johnson Ltd. by acquiring all its assets and liabilities
at the amount to which they are recorded in the balance sheet. Qingdao Ltd. Is issuing $110000
shares as a purchase consideration. Johnson Ltd. 90% inventory is already sold and remaining 10%
is valued at $18700.
2. Consolidation adjustments
Asset Revaluation Reserve of Qingdao Ltd. Is having surplus of $13500 which will be added
to the Balance Sheet balance of the company. Also, surplus would be added to the Land because it is
valued at $173500 ($160000+$13500).
Asset Revaluation Reserve A/C
Particular Amt.(Dr.) Particular Amt.(Cr.)
To balance 52000 By Balance c/f 18500
By surplus 13500
By Johnson ltd. 20000
52000 52000
3. Consolidation worksheet

Particulars Qingdao Johnson
Qingdao Ltd.
after
consolidation

Equities & Liabilities
Share Capital 360000 54000 414000
Retained Earnings 144000 41300 185300
General Reserve 10000 3000 13000
Asset Revaluation Reserve 32000 20000 52000
Liabilities 42500 13000 55500
Total 588500 131300 719800
Assets
Land 173500 20000 193500
Plant and Machinery 360000 125600 485600
-Depreciation -110000 -33000 -143000
Inventory 55000 18700 73700
Investment in Johnson 110000 0 110000
Total 588500 131300 719800
4. Income statements and Balance sheet
Income statement of Qingdao Ltd. for the year 2019
Particulars
Amount (in
£)
Profit before Tax 132500
-Income Tax Expense -60200
profit after Tax 72300
+Retained Earnings as on
01/07/2018 116000
-Transfer to Gen. Res. -3000
Retained Earnings as on
30/06/2019 185300
Balance Sheet of Qingdao Ltd. at 1st July 2019

Particulars
Amount (in
£)
Equities & Liabilities
Share Capital 414000
Retained Earnings 185300
General Reserve 13000
Asset Revaluation Reserve 52000
Liabilities 55500
Total 719800
Assets
Land 193500
Plant and Machinery 342600
Inventory 73700
Investment in Johnson 110000
Total 719800
CONCLUSION
Qingdao Ltd. acquired Johnson Ltd. Which not only added to the company's profits but also
added to assets of the company and also the human resources of the company. Company was only
having asset of $575000 but after acquisition now company has balance sheet balance of $719800
which is good for the company. It also reduced one competition of the company in the market.

REFERENCES
Books and Journals
Cicourel, A. V., 2017. The acquisition of social structure: Toward a developmental sociology of
language and meaning. In Everyday Life. (pp. 136-168). Routledge.
Jensen, C and et.al., 2018. What influences cross-border acquisition performance? A meta-analysis.
In Econometric Research in Finance 2018.
Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. Routledge.
Selcuk, B and et.al., 2018. Sequence of theory‐of‐mind acquisition in Turkish children from diverse
social backgrounds. Infant and Child Development. 27(4). p.e2098.